'We are seeing great interest from investors in Islamic countries, who want to invest their money in Germany according to sharia principles,' Bafin president Jochen Sanio said at a conference on Islamic finance in Frankfurt.

Germany seems to have the right idea when it comes to promotion of Islamic finance. As much as having a base of Muslims in the country is important and despite the high profile nature of Islamic banks in Europe, the real Islamic finance opportunity for Western countries lies in attracting Middle Eastern capital. This is what Germany did when two of its municipalities issued Sukuk in early 2000s -- and now again Germany looks to lead the way for other Western nations to follow.

Islamic banking is still a relatively under developed area with low market penetration rates. You see Islamic banks in strong markets like Malaysia and Saudi Arabia with market shares that are no higher than 12-14%. On the other hand, there is a lot of investor demand, especially when it comes to institutional investors, to find shariah compliant investment destinations.

The institutional investors have a very real need to diversify their Shariah compliant investments. The question now is whether governments in the Western countries can see that as an opportunity to bring investments into the country. If Germans and French can, others can too.